IT : In context of section 54F, 'residential house' cannot be construed as a singular and, moreover, it is not necessary that all residential units should have a single door number allotted to it
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[2013] 34 taxmann.com 98 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'D'
Smt. V.R. Karpagam
v.
Income-tax Officer, Ward - III(1), Coimbatore*
ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND S.S. GODARA, JUDICIAL MEMBER
AND S.S. GODARA, JUDICIAL MEMBER
IT APPEAL NO. 1082 (MDS.) OF 2010
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
MARCH 7, 2013
Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house [Meaning of residential house] - Assessment year 2007-08 - Whether in context of section 54F, 'residential house' cannot be construed as a singular and, moreover, it is not necessary that all residential units should have a single door number allotted to it - Held yes - Assessee had entered into an agreement with one 'H' Ltd., for development of a piece of land owned by her - As per agreement, assessee was to receive 43.75 per cent of built up area after development which was translated to five flats - Assessee filed her return claiming deduction under section 54F on value of five flats - Revenue authorities, however, restricted assessee's claim of deduction to one flat only - Whether, in view of aforesaid legal position, assessee was eligible for claiming deduction in respect of all five flats received by her in lieu of land she had parted with - Held, yes [Para 8] [In favour of assessee]
Words and Phrases : Words 'residential house' as occurring in section 54F of the Income-tax Act, 1961
FACTS
| ■ | The assessee had entered into an agreement with one 'H' Ltd., for development of a piece of land owned by her. | |
| ■ | As per the agreement, assessee was to receive 43.75 per cent of built up area after the development which was translated to five flats. | |
| ■ | The assessee filed her return claiming exemption under section 54F on the value of the five flats. | |
| ■ | The Assessing Officer restricted the claim of deduction under section 54F in respect of one flat only. | |
| ■ | The Commissioner (Appeals) also opined that section 54F placed a clear bar on claiming deduction on more than one residential house. In this view of the matter, he concluded that the Assessing Officer was justified in restricting the exemption claimed under section 54F to one flat. | |
| ■ | On second appeal: |
HELD
| ■ | None of the authorities below has doubted the eligibility of the assessee for claiming an exemption under section 54F. There only qualm is that assessee had preferred such claim for all the five flats whereas according to them, such exemption could only be founded to a single flat. [Para 6] | |
| ■ | The proviso which disables the assessee from claiming exemption under section 54F mentions at clause (i) that assessee concerned should not own more than one residential house, other than the new asset. Other clauses also restrict a claim under section 54F, if an assessee purchased a house or constructed any residential house other than a new asset. Sub-proviso (i) to proviso (a), i.e., owning more than one residential house on the date of transfer of the original asset will come into play only where assessee had within a period of one year before the date of transfer constructed a residential house as mentioned in substantive portion of sub-section (1). New asset is clearly defined in the substantive portion, to mean 'a residential house'. [Para 7] | |
| ■ | 'A residential house' in the context could not be construed as a singular. New asset defined in section 54F, as 'a residential house' has also to be understood in the plural. It is not necessary that all residential units should have a single door number allotted to it. Thus, assessee was eligible for claiming exemption under section 54F on all the five flats received by her in lieu of the land she had parted with. [Para 8] | |
| ■ | In the result, the assessee's appeal was to be allowed. |
CASES REFERRED TO
D. Anand Basappa v. ITO [2004] 91 ITD 53 (Bang.) (para 3), Dr. Smt. P.K. Vasanthi Rangarajan v. CIT [2012] 209 Taxman 628/23 taxmann.com 299 (Mad.) (para 4), CIT v. G. Saroja [TCA No.656 of 2005, dated 4-1-2012] (para 4) and CIT v. K.G. Rukminiamma [2011] 331 ITR 211/196 Taxman 87/[2010] 8 taxmann.com 121 (Kar.) (para 4).
R. Vijayaraghavan for the Appellant. Anrirudh Rai for the Respondent.
ORDER
Abraham P. George, Accountant Member - In this appeal filed by the assessee, it has raised two grievances through its six grounds. First grievance is regarding sale price adopted by the Assessing Officer at Rs. 1,20,44,512/- against Rs. 1,09,75,620/- considered by the assessee while working out capital gains. Second issue is regarding restriction of its claim for exemption under section 54F to a single flat.
2. Facts apropos are that assessee had entered into an agreement with one M/s. Mount Housing and Infrastructure Ltd., for development of a piece of land measuring 13,059 sq. ft. owned by her at door No.29F, Race Course, Coimbatore. As per the agreement, assessee was to receive 43.75% of built up area after the development. This 43.75% of the built up area translated to five flats. Assessee, while filing her return, calculated the capital gains based on a sale consideration of Rs. 1,09,75,620/-. As per assessee, this was the value of the flats, which were to be received by her and was equivalent to 56.25% of the undivided share of land given by her to M/s. Mount Housing and Infrastructure Ltd., Assessee also claimed exemption under section 54F of the Act on the value of the five flats. As per assessee, there were no capital gains whatsoever left for assessment. However, the Assessing Officer made enquiries with M/s. Mount Housing and Infrastructure Ltd., and found from them that the total cost of construction of the project came to Rs. 2,75,30,313/- . Therefore, according to him, sale value that was to be considered was 56.25% of the sum of Rs. 2,75,30,313/-. Accordingly, he substituted the figure of Rs. 1,09,75,620/- considered by the assessee with Rs. 1,54,85,801/-. Further, Assessing Officer restricted the claim of exemption under section 54F of the Act to one flat and the value of such one flat was fixed considering its area.
3. Assessee moved in appeal before the CIT(A). In so far as the question of sale consideration was concerned, Ld. CIT(A) held that Assessing Officer was justified in taking the cost of construction provided by M/s. Mount Housing and Infrastructure Ltd. However, he was of the opinion that assessee being entitled only to 43.75% of the constructed area in lieu of 56.25% of the land transferred, sale consideration could only be taken as 43.75% of the cost of Rs. 2,75,30,313/-. In other words against Rs. 1,54,85,801/- considered by the Assessing Officer as sale consideration, the CIT(A) directed adoption of Rs. 1,20,44,512/-. However, Ld. CIT(A) was not appreciative of the claim of assessee that all the five flats should be considered as a residential house eligible for exemption under section 54F of the Act. According to him, reliance placed by the assessee on the decision of Bangalore bench, this Tribunal in the case of D. Anand Basappa v. ITO [2004] 91 ITD 53 was misplaced. According to him, the said case was in relation to an exemption claimed under section 54 of the Act and not under section 54F of the Act. Ld. CIT(A) relying on para 7.2 of the said judgement, held that Tribunal itself had made out a distinction between a deduction claimed under section 54 and a deduction claimed under section 54F of the Act. As per Ld. CIT(A), Sec.54F placed a clear bar on claiming deduction on more than one residential house. In this view of the matter, he was of the opinion that Assessing Officer was justified in restricting the exemption claimed under section 54F of the Act to one flat.
4. Now before us, Ld. A.R fairly admitted that with regard to substitution of the sale consideration based on the cost of construction of the developer, M/s. Mount Housing and Infrastructure Ltd., the order of the Ld. CIT(A) could not be faulted. However, according to him, view of Ld. CIT(A) as well as Assessing Officer with regard to claim of exemption under section 54F was not justified. For this, he relied on the decision of jurisdictional High Court in the case of Dr. Smt. P.K. Vasanthi Rangarajan v. CIT [2012] 209 Taxman 628/23 taxmann.com 299 (Mad.). According to him, in the said case a similar claim under section 54F was originally declined by the Assessing Officer on the very same reason as given here in assessee's case. However their Lordships following an earlier decision in the case of CIT v. G. Saroja (TCA No.656 of 2005 dated 04.01.12) had held that there was no inhibition in the assessee claiming benefit of investments made in four flats for giving benefits under section 54F of the Act. According to him, the facts here were pari materia with the case before the Hon'ble jurisdictional High Court. Therefore, assessee was entitled to claim exemption under section 54F of the Act on all the five flats.
5. Per contra Ld. D.R strongly assailing the order of the CIT(A) submitted that Hon'ble jurisdictional High Court in the case of G. Saroja (supra) had given relief to the assessee for four flats received by the assessee in exchange of ownership over part of the land with building, based on a finding that these four flats were assessed as one unit with one door number. On the other hand, in assessee's case here, five flats were different residential units with different door numbers. Therefore, according to him, assessee could not take refuge under said decision and claim that exemption under section 54F should be given to all the flats.
6. We have perused the orders of the lower authorities and heard the rival contentions. There is no dispute that assessee was allotted five flats in lieu of her forgoing 56.75 % of the rights in 13,059 sq ft land and building therein. None of the authorities below has doubted the eligibility of the assessee for claiming an exemption under section 54F of the Act. Their only qualm is that assessee had preferred such claim for all the five flats whereas according to them, such exemption could only be founded to a single flat. As per CIT (A) provisions of Sec 54 and Sec.54F were not pari materia, for coming to this conclusion, Ld. CIT(A) relied on the decision of Co-ordinate Bench in the case of D. Anand Basappa (supra). No doubt, in D. Anand Basappa(supra), this Tribunal had observed as under:-
"7.2 We therefore, examine as to whether 'a residential house' should be treated as 'one residential house' or whether 'more than one residential house' can be considered eligible for deduction under section 54. Reading the provisions of s.54 it can be held that there is no bar like s.54F deduction for more than one residential house."
However, we have to keep in mind that Tribunal was considering a claim of exemption under section 54 and not one under section 54F. Therefore, in our opinion, its observation regarding Sec.54F cannot be considered as a finding, which will render it, not one, which is res integra.
7. A look at Sec.54F is necessary at this juncture. The said section is reproduced hereunder:-
"Sec. 54F.
(1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, -
| (a) | if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; | |
| (b) | if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: |
Provided that nothing contained in this sub-section shall apply where-
(a) the assessee,-
| (i) | owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or | |
| (ii) | purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or | |
| (iii) | constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and |
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property"
The proviso which disables the assessee from claiming exemption under section 54F mentions at clause (i) that assessee concerned should not own more than one residential house, other than the new asset. Other clauses also restrict a claim under section 54F, if an assessee purchased a house or constructed any residential house other than a new asset. In our opinion, sub-proviso (i) of proviso (a), i.e. owning more than one residential house on the date of transfer of the original asset will come into play only where assessee had within a period of one year before the date of transfer constructed a residential house as mentioned in substantive portion of sub-section(1). New asset is clearly defined in the substantive portion, to mean 'a residential house'. Whether 'a residential house" can include only one flat or more than one flat was the issue considered by Hon'ble Karnataka High Court in the case of CIT v. Smt. K.G. Rukminiamma [2011] 331 ITR 211/196 Taxman 87/[2010] 8 taxmann.com 121. Relying on Sec.13 of the General Clauses Act, 1897, it was held as under by their Lordships at para 10 of the judgement:
"(2) words in the singular shall include the plural, and vice versa The context in which the expression "a residential house" is used in Sec.54 makes it clear that, it was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the word "one". As in e earlier part, the words used are buildings or lands which are plural in number and that is referred to as 'a residential house", the original asset. An asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be 'a residential house". Therefore the letter "a" in the context it is used should not be construed as meaning 'singular". But being an indefinite article, the said expression should be read in consonance with the other words 'buildings and lands' and therefore, the singular 'a residential house' also permits use of plural by virtue of Sec.13(2) of the General Clauses Act. This is the view which is taken by this court in the aforesaid Anand Basappa's case in ITA No.113/2004 , disposed of on September 20, 2008 [2009] 309 ITR 329 (Kar.)"
8. Their Lordships has clearly held in the above judgement that 'a residential house' in the context could not be construed as a singular. In the said case also, claim for exemption was with regard to four flats in lieu of share in land, but the claim was under section 54 of the Act and not under section 54F of the Act. However, in our opinion the meaning given to the expression "a residential house" will apply paripassu to Sec.54F also, since the expression used here is also 'a residential house'. New asset defined in the sec.54F, as 'a residential house' has also to be understood in the plural. It is not necessary that all residential units should have a single door number allotted to it as argued by the Ld. D.R. No doubt Hon'ble jurisdictional High Court in the case of G. Saroja (supra) did consider the fact that different flats were having one door number. However, this alone was not the reason why assessee was held to be eligible for claiming of exemption under section 54F of the Act. Their Lordships took cue from the decision of Hon'ble Karnataka High Court in the case of Smt. K.G. Rukminiamma (supra). Similar exemption was given by the Hon'ble jurisdictional High Court again in the case of Dr.(Smt.) P.K. Vasanthi Rangarajan (supra) wherein there was no claim that flats allotted in lieu were having single number. We are therefore of the opinion that assessee was eligible for claiming exemption under section 54F of the Act on the five flats received by her in lieu of the land she had parted with.
9. In the result, Ground Nos. 4 & 5 of the assessee stands allowed whereas ground Nos.2 & 3 are dismissed.
10. To summarise, the appeal of assessee is partly allowed.
IT : A property may have been purchased as a readymade unit but that does not restricts the buyer from incurring any bona fide construction expenditure on improvisation or supplementary work. Accordingly, as long as the assessee has incurred the bona fide construction expenditure, even after purchasing the unit, the additional expenses so incurred would be eligible for section 54 deduction
HELD
• The use of words 'purchased or constructed' in section 54 does not mean that the property can either be purchased or constructed and not a combination of both the actions.
• A property may have been purchased as a readymade unit but that does not restricts the buyer from incurring any bonafide construction expenditure on improvisation or supplementary work.
• Accordingly, as long as the assessee has incurred the bona fide construction expenditure, even after purchasing the unit, the additional expenses so incurred would be eligible for qualifying investment under section 54.
• The cost of purchase under section 54 does include any capital expenditure incurred by the assessee on such property to make it liveable.
• As long as the costs are of such a nature as would be includible in the cost of construction in the normal course, even if the assessee has bought a readymade unit and incurred those costs after so purchasing the readymade unit – as per his taste and requirements, the costs so incurred will form integral part of the qualifying amount of investment in the house property.
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[2013] 35 taxmann.com 170 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'B'
Shrinivas R Desai
v.
Assistant Commissioner of Income- tax (OSD), Circle-10
PRAMOD KUMAR, ACCOUNTANT MEMBER
AND KUL BHARAT, JUDICIAL MEMBER
AND KUL BHARAT, JUDICIAL MEMBER
IT APPEAL NOS. 1245 AND 2432 (AHD) OF 2010
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
JUNE 28, 2013
S.N. Divetia for the Appellant. Y.P. Verma for the Respondent.
ORDER
Pramod Kumar, Accountant Member - It is a recalled matter. Originally, both of these appeals were disposed of vide consolidated order dated 7th September 2002, but, pursuant to a rectification petition filed by the assessee, the said order was recalled While so recalling the matter, the Tribunal, vide order 4th January 2013, inter alia, observed that "we find that there is a mistake apparent from the record in not referring to various evidence relied upon by the assessee in support of the case that the house was made inhabitable from September 2007", and, accordingly, the order, so far as it pertained to the quantum addition, was recalled. It is in this backdrop that we have come to be in sesin of the matter.
2. The quantum appeal, i.e. recalled appeal, is directed against the order dated 26th February 2010, passed by the learned CIT(A), in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 207-08. The short issue that we are required to adjudicate in this appeal is whether or not the learned CIT(A) was justified in upholding in denial of exemption under section 54 in respect of the cost of improvement, in the new house property, aggregating to Rs 15,48,773.
3. The relevant material facts are like this. The assessee before us is a retired salaried employee. During the relevant previous year, the assessee sold his house property at "5, Government Servants' Society, Ahmedabad" for a consideration of Rs 1,50,86,452, and, after deducting indexed cost of acquisition which worked out to Rs 52,09,597 from sale proceeds, the assessee earned capital gains of Rs 98,76,855. Thereafter the assessee purchased another property at "20, Golden Tulip Co operative Housing Society, Ahmedabad" for Rs 71,94,570, and claimed to have spent on another Rs 15,48,773 on its improvement. However, in the course of the assessment proceedings, the Assessing Officer took the stand that the cost of improvement' is to be allowed as a deduction in the hands of the transferor and not in the hands of the transferee. Accordingly, the Assessing Officer required the assessee to show cause as to why deduction claimed for cost of improvement not be disallowed. It was submitted by the assessee that "the cost of improvement, as per section 55(1)(b), in any other case, means all the expenditure of capital nature incurred in making any addition or alteration to the capital asset by the assessee, after it becomes his property". This submission, as also other elaborate arguments made by the assessee, did not impress the Assessing Officer. He noted that the assessee has purchased a ready made property, that since the assessee had sold his house in August 2006, whereas the new property was purchased in May 2006, these facts do not indicate that the house was not in a livable condition at the point of time of purchase. The Assessing Officer further noted that the expenses were claimed to have been incurred by the assessee till 31st March 2007, i.e. much after purchasing the house. On the strength of these observations, the Assessing Officer rejected assessee's claim for the cost of improvement in the new house property being taken into account for computation of Section 54 benefit. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) noted that the assessee had sold his house in August 2006 and since the assessee had incurred expenses of only Rs 25,315 till August 2006, it could not be believed that the entire expenditure of Rs 15,48,773 was made to make the new house property inhabitable. Learned CIT(A) thus upheld the action of the Assessing Officer and declined to interfere in the matter. The assessee is not satisfied and is in further appeal before us.
4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of applicable legal position.
5. We have noticed that while the authorities below have laid lot of emphasis on the fact that as the original house property was sold by the assessee in August 2006, it cannot be believed that new house property was not habitable till September 2007. This observations proceeds on the assumption that on sale of old house property, assessee had to essentially shift in the new house. However, this overlooks the uncontroverted fact that the assessee had, during the period August 2006 to June 2007, lived in a residential unit leased from one Shri Atul Verma. All the lease rental payments were made by cheque and a copy of the lease agreement, evidencing this arrangement, was also placed before us in the paperbook at pages 26 to 33. A copy of the brokerage note, in connection with the said lease agreement, was also placed on record before us. Learned Departmental Representative could not point out any errors or inconsistencies in this material. In this view of the matter, the very foundation of assumption by the authorities below to the effect that the new house property was habitable, at the point of time when it was purchased, is unsustainable. It is also important to bear in mind the fact that merely because a person has moved into the new property does not mean that the construction work is complete. One can, after all, move in a new property even when work is partly complete, and it does happen in the real life. We also find that Section 54(1) of the Act, provides that, "subject to the provisions of sub-section (2), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, - (i) If the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain." In our considered view, the cost of purchases does include any capital expenditure incurred on the assessee on such property to make it liveable. As long as the costs are of such a nature as would be includible in the cost of construction in the normal course, even if the assessee has bought a readymade unit and incurred those costs after so purchasing the readymade unit - as per his taste and requirements, the costs so incurred will form integral part of the qualifying amount of investment in the house property. The use of words 'purchased or construed' does not mean that the property can either be purchased or constructed and not a combination of both the actions. A property may have been purchased as a readymade unit but that does not restricts the buyer from incurring any bonafide construction expenditure on improvisation or supplementary work. Accordingly, in our considered view, as long as the assessee has incurred the bonafide construction expenditure, even after purchasing the unit, the additional expenses so incurred would be eligible for qualifying investment under Section 54. However, as the relevant factual verifications have not been carried out by any of the authorities below, we deem it fit and proper to restore the matter to the file of the Assessing Officer for fresh adjudication in the light of our above observations, in accordance with the law and by way of a speaking order, after giving yet another opportunity of hearing to the assessee. We order so.
6. For the reasons set out above, the matter stands restored to the file of the Assessing Officer, and, to that extent, quantum appeal is allowed for statistical purposes in the terms indicated above.
IT: Assessment can legitimately be reopened on basis of material which comes to Assessing Officer after original assessment or during course of assessment proceedings for next assessment year
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[2013] 34 taxmann.com 228 (Bombay)
HIGH COURT OF BOMBAY
Rabo India Finance Ltd.
v.
Deputy Commissioner of Income-tax*
DR. D. Y. CHANDRACHUD AND A. A. SAYED, JJ.
WRIT PETITION (LODG.) NO. 592 OF 2013
MAY 3, 2013
Section 147, read with section 37(1), of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [To disallow business expenditure under section 37(1)] - Assessment year 2006-07 - Whether an Assessing Officer acts within jurisdiction in reopening an assessment on basis of information which comes to him after original assessment and during course of assessment proceedings for a subsequent assessment year - Assessee-company claimed deduction on account of business support charges, guarantee fees and other service charges paid to its holding company and it was allowed deduction accordingly - However, Assessing Officer noticed that in assessment proceedings for assessment year 2007-08, business support charges and guarantee fees paid to holding company were disallowed being not for business expediency - On basis of said order, Assessing Officer reopened assessment for assessment year 2006-07 - Records revealed that Assessing Officer for assessment year 2006-07 did not evaluate or consider said issues - Moreover, assessment order for assessment year 2007-08 could be said to be tangible material to form belief that income had escaped assessment - Whether re-opening was justified - Held, yes [Para 9] [In favour of revenue]
FACTS
| ■ | The assessee-company was a wholly owned subsidiary of a foreign company. It was paying business support charges, guarantee fees and other service charges to its holding company. | |
| ■ | The Assessing Officer in assessment proceedings for year 2007-08 held that no substantial or specific services had been rendered by the holding company and, hence, the business support charges and guarantee fees paid to the holding company were not for business expediency and since this issue was apparently not verified in the transfer pricing proceedings by the TPO, these were to be disallowed. | |
| ■ | On basis of said order, the Assessing Officer, facts being similar initiated re-assessment proceedings for assessment year 2006-07. | |
| ■ | The assessee filed writ petition and submitted that the Transfer Pricing Officer as well as the Assessing Officer applied their minds in the first instance even though there was no specific finding and the reopening of the assessment was based on a mere change of opinion and that the reopening of the assessments of the assessee for assessment years 2004-05 and 2005-06 under section 148 was questioned in writ proceedings before the High Court but the notices issued for were quashed and set aside. |
HELD
| ■ | In the present case, the assessment is sought to be reopened within a period of four years of the end of the relevant assessment year. Where an assessment is sought to be reopened beyond a period of four years, the proviso to section 147 stipulates as a jurisdictional requirement that there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Such a requirement, which the proviso to section 147 stipulates in respect of a reopening beyond a period of four years is evidently not extrapolated to a situation as in the present case the reopening is within a period of four years. Where reopening of an assessment under section 148 takes place within a period of four years, the test that has been laid down by the Supreme Court is whether the Assessing Officer had tangible material to come to the conclusion that there is an escapement of income from assessment. [Para 4] | |
| ■ | The judgments of the Supreme Court on the subject contain a clear elaboration of principle in which it has been held that an Assessing Officer acts within jurisdiction in reopening an assessment on the basis of information which comes to him after the original assessment and during the course of the assessment proceedings for a subsequent assessment year.[Para 5] | |
| ■ | The order of the Assessing Officer for assessment year 2006-07 contained absolutely no evaluation or consideration whatsoever in respect of the issues on the basis of which the assessment had been sought to be reopened. During the course of the assessment proceedings for assessment year 2007-08, an order of assessment came to be passed on 24-11-2010. During the course of the order of the assessment, the Assessing Officer on the basis of material in his possession came to the conclusion that the assessee had failed to demonstrate the nature of the services or support received, the necessity of the said services, and that the payments were made for commercial reasons of business exigency, as a result of which the expenses were inadmissible under section 37(1). Having regard to the law as expounded by the Supreme Court, one can come to the assessment for assessment year 2006-07 could legitimately be reopened on the basis of the material which came before the Assessing Officer during the course of the assessment proceedings for assessment year 2007-08. [Para 9] | |
| ■ | The earlier judgment of a Division Bench of High Court in the proceedings initiated by the assessee related to the reopening for assessment years 2004-05 and 2005-06 which was admittedly beyond a period of four years. Where the reopening of an assessment takes place beyond a period of four years of the end of the relevant assessment year, the jurisdictional condition before an assessment can be validly reopened is that there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment for that assessment year. The test which the Division Bench was therefore called upon to apply in relation to the reopening of assessments for assessment years 2004-05 and 2005-06 beyond a period of four years would therefore be distinct from the situation in the present proceeding where the reopening has taken place within a period of four years. The Division Bench in fact observed that the reopening for those years was admittedly not on the basis of any new material or the existence or even the realization of any provision of law or judgment which had not been noticed earlier. The situation in the present case is clearly distinguishable where the reopening of the assessment is within a period of four years. [Para 10] | |
| ■ | The Assessing Officer was acting within jurisdiction in reopening the assessment for assessment year 2006-07 on the basis of the assessment proceedings for assessment year 2007-08. The mere fact that the income has been assessed in the hands of the parent company of the assessee could not be demonstrative of the allowability of the expenditure under section 37(1). Similarly, the considerations which weigh in the passing of an order under section 195(2) would clearly not be dispositive of the jurisdiction of the Assessing Officer to reopen an assessment under section 148. For these reasons, no reason or justification is found to interdict the exercise of the jurisdiction of the Assessing Officer to reopen an assessment under section 148. The reopening within a period of four years in the present case is based on tangible material. [Para 10] |
CASE REVIEW
CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) (para 4), Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287 (SC) (para 5), Claggett Brachi Co. Ltd v. CIT [1989] 177 ITR 409/44 Taxman 86 (SC) (para 5), Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34(SC)(para 6), Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 8) followed.
CASES REFERRED TO
CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) (para 4), Hindustan Lever Ltd. v. R.B. wadkar, Asstt. CIT [2004] 268 ITR 332/137 Taxman 479 (Bom.) (para 4), Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287 (SC) (para 5), Claggett Brachi Co. Ltd v. CIT[1989] 177 ITR 409/44 Taxman 86 (SC) (para 5), Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34(SC) (para 6), Virudhunagar Co. Operative Milk Supply Society Ltd. v. CIT [1990] 183 ITR 545/[1989] 46 Taxman 13 (Mad.) (para 7), Ropar District Co. Operative Milk Producers Union Ltd. v. CIT [2009] 311 ITR 42/[2007] 165 Taxman 477 (Punj. & Har.) (para 7), Diwakar Engineers Ltd. v. ITO [2010] 329 ITR 28/187 Taxman 327 (Delhi) (para 7) and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 8).
Jehangir D. Mistri and Atul K. Jasani for the Petitioner. P.C. Chhotaray for the Respondent.
JUDGMENT
Dr. D.Y. Chandrachud, J. - In these proceedings under Article 226 of the Constitution the Petitioner seeks to challenge the reopening of an assessment for Assessment Year 2006-07, under Section 148 of the Income Tax Act, 1961 by a notice dated 28 March 2011. The reopening in the present case is admittedly within a period of four years of the end of the relevant Assessment Year. The reasons on the basis of which the assessment is sought to be reopened are as follows:
"The assessee company is a wholly owned subsidiary of a Scottish bank. It is paying business support charges, guarantee fees and other service charges to its holding company. During the assessment year 2007-08, the AR was asked to produce the details of business support charges etc. received from the holding company. The details furnished by the AR shows that no substantial or specific services have been rendered by the holding company. Hence, the business support charges, guarantee fees paid to the holding company are not for business expediency. These payments are also subject matter of TP and this issue was apparently not verified in the transfer pricing proceedings by the TPO. The facts being the same for the AY 2006-07, the above expenses need to be disallowed.
I have therefore reasons to believe that the income of Rs.18,62,02,246/- has escaped assessment under the provisions of Income Tax Act, 1961 for the AY 2006-07 and remedial action by issuance of notice u/s 148 will be appropriate in the case because all the conditions for issue of such notice are fulfilled in this case. Hence the assessment for A.Y. 2006-07 is hereby re-opened."
2. On behalf of the Petitioner, it has been urged that -
| (i) | Before the order of assessment was passed in the present case, requisitions were issued by the Transfer Pricing Officer and thereafter even by the Assessing Officer during the course of which explanatory statements were furnished by the assessee in regard to the interest on external commercial borrowings, guarantee commission and payments made for head office and regional charges. The Transfer Pricing Officer as well as the Assessing Officer had therefore applied their minds in the first instance even though there was no specific finding and the reopening of the assessment is consequently based on a mere change of opinion; | |
| (ii) | The reopening of the assessments of the Petitioner for Assessment Years 2004-05 and 2005-06 under Section 148 was questioned in writ proceedings before this Court. By a judgment and order of a Division Bench dated 9 July 2012, the notices issued for those years for reopening the assessments were quashed and set aside. Though the reopening in that case was beyond a period of four years of the end of the relevant Assessment Year, the observations of the Division bench would indicate that the reopening was on the basis of a mere change of opinion and was therefore impermissible; | |
| (iii) | The parent company of the Petitioner has been assessed in respect of the very same income; and | |
| (iv) | Tax was deducted at source on the basis of an order that was passed under Section 195(2) of the Income Tax Act 1961. |
3. On the other hand, it has been urged on behalf of the Revenue that -
| (i) | The reopening of the assessment in the present case is on the basis of the assessment proceedings for Assessment Year 2007-08 since in the course of those proceedings it had emerged that no substantial or specific services were rendered by the holding company; | |
| (ii) | In view of a line of precedent of the Supreme Court, it is a settled principle of law that the reopening of an assessment on the basis of information which is disclosed in the course of assessment proceedings for a subsequent assessment year is permissible. In the present case the reopening of the assessment is within a period of four years and the test to be applied is whether there was tangible material before the Assessing Officer on the basis of which the assessment could be reopened. Ex-facie, the order of assessment for Assessment Year 2007-08 would constitute tangible material on the basis of which the assessment for Assessment Year 2006-07 could be reopened; | |
| (iii) | The earlier judgment of the Division Bench of this Court dated 9 July 2012 related to the reopening of the assessments for Assessment Years 2004-05 and 2005-06 which took place beyond a period of four years of the end of the relevant Assessment Year. In such a case the jurisdictional requirement is that there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that Assessment Year. On the other hand, where the assessment has been reopened within a period of four years, as in the present case, the test is as to whether there is tangible material before the Assessing Officer for reopening an assessment. Once there is tangible material, the reopening would have to be sustained; | |
| (iv) | The mere fact that the parent company has been assessed on the basis of the same income would not be conclusive of the allow-ability of the expenditure under Section 37(1) of the Income Tax Act 1961; and | |
| (v) | Similarly, the order under Section 195(2) was only concerned with the deduction of tax on payments which have been made to a non-resident and would not be conclusive of whether the assessment could be legitimately reopened under Section 148 of the Income Tax Act 1961. |
4. In the present case, the assessment is sought to be reopened within a period of four years of the end of the relevant Assessment Year. Where an assessment is sought to be reopened beyond a period of four years, the proviso to Section 147 stipulates as a jurisdictional requirement that there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that Assessment Year. Such a requirement which the proviso to Section 147 stipulates in respect of a reopening beyond a period of four years is evidently not extrapolated to a situation where as in the present case the reopening is within a period of four years. Where a reopening of an assessment under Section 148 takes place within a period of four years, the test that has been laid down by the Supreme Court in the CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 is whether the Assessing Officer had tangible material to come to the conclusion that there is an escapement of income from assessment. The Supreme Court has held that the "reason to believe" that any income chargeable to tax has escaped assessment cannot be founded on a mere change of opinion. The power to reassess is not in the nature of a power to review. Hence, the true test to be applied, where a reopening takes place within a period of four years, as in the present case, is whether there exists tangible material on the basis of which the Assessing Officer has proceeded to reopen the assessment. That determination has to be made on the basis of the reasons which are disclosed to the assessee. For it is those reasons which form the foundation of the action of the Assessing Officer and form the basis on which the belief that income has escaped assessment is formed. Hindustan Lever Ltd v. R.B. Wadkar, Asstt. CIT [2004] 268 ITR 332/137 Taxman 479 (Bom.).
5. The judgments of the Supreme Court on the subject contain a clear elaboration of principle in which it has been held that an Assessing Officer acts within jurisdiction in reopening an assessment on the basis of information which comes to him after the original assessment and during the course of the assessment proceedings for a subsequent assessment year. This principle was laid down in a judgment of the Supreme Court in Kalyanji Mavji & Co. v.CIT [1976] 102 ITR 287 while construing the expression "information" in Section 34(1)(b) of the Income Tax Act 1961. A similar principle of law was enunciated in a subsequent decision of the Supreme Court in Claggett Brachi Co. Ltd. v. CIT [1989] 177 ITR 409/44 Taxman 86 where the Income tax Officer came to realise that income had escaped assessment for two assessment years when he was in the process of making an assessment for a subsequent assessment year. While making that assessment, he came to know from the documents pertaining to that assessment that the overhead expenses related to the entire business including the business as commission agents and were not confined to the business of purchase and sale. The Supreme Court held that it is true that this information could have been acquired by the Income-tax Officer if he had exercised due diligence at the time of the original assessment itself. The reopening of the assessment was upheld, on the basis of information which came into the possession of the Assessing Officer when taking assessment proceedings for the subsequent year.
6. In Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) an assessment was sought to be reopened and the reasons recorded for reopening under Section 147(a) of the Income Tax Act 1961 showed that according to the Revenue the assessee was charging to its Profit and Loss Account, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals etc. However, while valuing its closing stock, the elements of fiscal duty and other direct manufacturing costs were not included, as a result of which there was an undervaluation of inventories and understatement of profits. This information was obtained by the Revenue in an assessment proceeding of a subsequent assessment year. While upholding the reopening, the Supreme Court observed as follows :
"In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed."
7. A similar principle of law has been laid down in a judgment of a Division Bench of the Madras High Court in Virudhunagar Co-operative Milk Supply Society Ltd v. CIT [1990] 183 ITR 545/[1989] 46 Taxman 13 and in a judgment of a Division Bench of the Punjab and Haryana High Court inRopar District Co-operative Milk Producers Union Ltd. v. CIT [2009] 311 ITR 42/[2007] 165 Taxman 477 (Punj & Har.) In a more recent judgment, a Division Bench of the Delhi High Court in Diwakar Engineers Ltd. v. ITO [2010] 329 ITR 28/187 Taxman 327 held that where materials had come to light during the assessment of a subsequent Assessment Year, that would not constitute a mere change of opinion, but could sustain a notice of reopening.
8. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) the Supreme Court has held that the expression "reason" in the phrase "reason to believe" would mean a cause or justification and if the Assessing Officer has cause or a justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. That expression, the Supreme Court held cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence on conclusion. At the stage of a notice under Section 148, the final outcome of the proceedings is not relevant and at the stage of initiation what is required is a reason to believe, but not an established fact of the escapement of income. At the stage of the issuance of a notice, the only question is whether there was relevant material on the basis of which a reasonable person could have formed a requisite belief and whether the materials could conclusively prove the escapement of income is not a concern at that stage. The Supreme Court has also cautioned that at the stage of the issuance of a notice under Section 148, it is not necessary that the material must be extensive and detailed, since there is a difference in the material for the purpose of initiation and that required for successfully completing a reassessment.
9. In the present case, the order of the Transfer Pricing Officer dated 14 February 2008 under Section 92 CA(3) contained only the following reasoning:
"Considering the facts and circumstances of the case, and the assessee's submissions and documents furnished, the value of the international transactions with the associated enterprises, with regards to the Arm's length price is not being disturbed."
Similarly, the order of the Assessing Officer under Section 143(3) for Assessment Year 2006-07 contains absolutely no evaluation or consideration whatsoever in respect of the issues on the basis of which the assessment has been sought to be reopened. During the course of the assessment proceedings for Assessment Year 2007-08, an order of assessment came to be passed on 24 November 2010. During the course of the order of assessment, the Assessing Officer on the basis of material in his possession came to the conclusion that the assessee had failed to demonstrate the nature of the services or support received, the necessity of the said services, that the payments were made for commercial reasons of business exigency, as a result of which the expenses were inadmissible under Section 37(1). At this stage, the Court is not concerned with the correctness of that determination, since the only issue is as to whether the material which emerged during the course of the assessment proceedings for Assessment Year 2007-08 and the order of assessment could furnish tangible material on the basis of which the assessment for Assessment Year 2006-07 could be reopened. Having regard to the law as expounded by the Supreme Court in the several judgments which we have noted earlier, we have come to the conclusion that the assessment for Assessment Year 2006-07 could legitimately be reopened on the basis of the material which came before the Assessing Officer during the course of the assessment proceedings for Assessment Year 2007-08.
10. The earlier judgment of a Division Bench of this Court in the proceedings initiated by the assessee related to the reopening for Assessment Years 2004-05 and 2005-06 which was admittedly beyond a period of four years. Where the reopening of an assessment takes place beyond a period of four years of the end of the relevant Assessment Year, the jurisdictional condition before an assessment can be validly reopened is that there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment for that Assessment Year. The test which the Division Bench was therefore called upon to apply in relation to the reopening of assessments for Assessment Years 2004-05 and 2005-06 beyond a period of four years would therefore be distinct from the situation in the present proceeding where the reopening has taken place within a period of four years. The Division Bench in fact observed that the reopening for those years was admittedly not on the basis of any new material or the existence or even the realization of any provision of law or judgment which had not been noticed earlier. The situation in the present case is clearly distinguishable where the reopening of the assessment is within a period of four years. In view of the position in law as laid down by the Supreme Court, we have no hesitation in coming to the conclusion that the Assessing Officer was acting within jurisdiction in reopening the assessment for A.Y. 2006-07 on the basis of the assessment proceedings for A.Y. 2007-08. The mere fact that the income has been assessed in the hands of the parent company of the assessee would not be demonstrative of the allowability of the expenditure under Section 37(1). Similarly, the considerations which weigh in the passing of an order under Section 195(2) would clearly not be dispositive of the jurisdiction of the Assessing Officer to reopen an assessment under Section 148. For these reasons, we do not find any reason or justification to interdict the exercise of the jurisdiction of the Assessing Officer to reopen an assessment under Section 148. The reopening within a period of four years in the present case is based on tangible material. We accordingly dismiss the Petition.
There shall be no order as to costs.
POOJAThe Tale of Tax Evasion, Anti-Evasion, and a good use of Canine Teeth
NEW DELHI, JULY 06, 2013: TAX evasion is normally believed to be a risky business. But, if one goes by the recent incident, one may feel compelled to conclude that Anti-evasion is fraught with greater risk. Here unfolds the story:
+ the DGCEI (Hqs) receives intelligence of alleged tax evasion by one Muzzafarnagar-based unit i.e M/s Trikoot Iron and Steel Casting Ltd;
+ Acting on the actionable inputs with alacrity, the officers conduct searches on the resident of the Directors, the factory and the Head Office premises last Thursday;
+ Teams seize many incriminating documents, pendrives and hard discs containing data of sales;
+ Irked by the raid, one of the Directors resorted to an unusual defence of opening the cage of his pet dogs of Great Den and Saint Bernard breeds;
+ The ferocious canine completely changed the 'plot' of the operation from the officers chasing the Directors to the officers making good use of their legs to look for safe shelter;
+ Unfortunately, the legs of one of the officers failed him, and the canine outpaced him only to make good use of their scary teeth;
+ The dogs were let loose allegedly only to buy some time to destroy the 'hard disc' of a computer being run from the kitchen of the Director's residence;
+ Having 'bought' some time, the Director allegedly threw the hard disc of his kitchen-based system connected to three different monitors installed in three rooms;
+ With the help of the police and more officers, the situation was brought under control, and a fresh hunt was launched to locate the missing hard disc;
+ The hard disc was finally retrieved along with other documents;
+ The DGCEI has claimed that the assessee has allegedly recorded sales of saria to the tune of Rs 100 Cr in the last three months but had shown only Rs 35 Cr sales on paper;
+ The Director of the unit has apparently paid Rs 1 crore on the spot, and the probe is on.
+ The projected evasion is alleged to be Rs 20 Cr.
NEW DELHI, JULY 06, 2013: TAX evasion is normally believed to be a risky business. But, if one goes by the recent incident, one may feel compelled to conclude that Anti-evasion is fraught with greater risk. Here unfolds the story:
+ the DGCEI (Hqs) receives intelligence of alleged tax evasion by one Muzzafarnagar-based unit i.e M/s Trikoot Iron and Steel Casting Ltd;
+ Acting on the actionable inputs with alacrity, the officers conduct searches on the resident of the Directors, the factory and the Head Office premises last Thursday;
+ Teams seize many incriminating documents, pendrives and hard discs containing data of sales;
+ Irked by the raid, one of the Directors resorted to an unusual defence of opening the cage of his pet dogs of Great Den and Saint Bernard breeds;
+ The ferocious canine completely changed the 'plot' of the operation from the officers chasing the Directors to the officers making good use of their legs to look for safe shelter;
+ Unfortunately, the legs of one of the officers failed him, and the canine outpaced him only to make good use of their scary teeth;
+ The dogs were let loose allegedly only to buy some time to destroy the 'hard disc' of a computer being run from the kitchen of the Director's residence;
+ Having 'bought' some time, the Director allegedly threw the hard disc of his kitchen-based system connected to three different monitors installed in three rooms;
+ With the help of the police and more officers, the situation was brought under control, and a fresh hunt was launched to locate the missing hard disc;
+ The hard disc was finally retrieved along with other documents;
+ The DGCEI has claimed that the assessee has allegedly recorded sales of saria to the tune of Rs 100 Cr in the last three months but had shown only Rs 35 Cr sales on paper;
+ The Director of the unit has apparently paid Rs 1 crore on the spot, and the probe is on.
+ The projected evasion is alleged to be Rs 20 Cr.
ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))
Volume 17 : Part 1 (Issue dated : 9-07-2012)
SUBJECT INDEX TO CASES REPORTED IN THIS PART
Advance tax --Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation--Income-tax Act, 1961, ss. 234A, 234B-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Capital gains --Exemption--Investment of consideration in specified bonds within six months of transfer--Receipt of consideration in subsequent years and investment within six months of receipt--Exemption allowable--Income-tax Act, 1961, s. 54EC-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
----Exemption--Investment of proceeds in agricultural land--No material to show land was put to other use--That assessee had ventured into real estate business--Not ground to infer land would be put to non-agricultural use--Exemption not to be denied --Income-tax Act, 1961, s. 54B-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
----Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement--Income-tax Act, 1961, ss. 2(47), 45(3)-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
Depreciation --Rate of depreciation--Computer accessories--To be allowed at 60 per cent.--Income-tax Act, 1961-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
Interest on excess refund --Provision not applicable for assessment year 2003-04--Income-tax Act, 1961, s. 234D-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
International transactions --Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment--Income-tax Act, 1961, s. 92C--Income-tax Rules, 1962, r. 10B(2)-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24
----Arm’s length price--Expenditure cannot be disallowed merely because in opinion of Transfer Pricing Officer it was unnecessary--Amended formula brought for first time before Tribunal--Reasonableness to be determined by authorities below--Matter remanded--Income-tax Act, 1961, s. 92CA-- Ericsson India Private Ltd. v. Deputy CIT (Delhi) . . . 79
----Arm’s length price--Reimbursement of expenses to associate enterprises--Addition on ground that services not intra-group services and no remuneration paid--Assessee furnishing details of expenses paid of work done--Addition to be deleted--Income-tax Act, 1961, s. 92CA-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
----Transfer pricing--Arm’s length price--Referral fee--Reference to Transfer Pricing Officer--Finding of Transfer Pricing Officer that transaction at arm’s length price--Assessing Officer has no jurisdiction to re-determine and make addition--Income-tax Act, 1961, s. 92CA(4)--CBDT Circular No. 3 dated 12-3-2008-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
Non-resident --Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services--Income-tax Act, 1961, s. 9(1)(vii)--Double Taxation Avoidance Agreement between India and the Netherlands, arts. 5, 12(5)(b)-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Reassessment --Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper--Income-tax Act, 1961, ss. 143(1), 147, 148-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Search and seizure --Block assessment--Limitation--Date from which reckoned--“Last of panchnamas†, meaning of--Last of panchnamas in respect of any of warrants of authorisation not necessarily in respect of last warrant of authorisation--Requirements of panchnama--Panchnama not recording any search or statement but mere formality for lifting prohibitory order--Not panchnama from which time limit of assessment to be reckoned--Income-tax Act, 1961, s. 158BE, Expln. 2 -- CIT (Asst.) v. Shree Ram Lime Products Ltd. [SB] (Jodhpur) . . . 1
SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and the Netherlands :
Art. 5 --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Art. 12(5)(b) --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Income-tax Act, 1961 :
S. 2(47) --Capital gains--Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
S. 9(1)(vii) --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 45(3) --Capital gains--Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
S. 54B --Capital gains--Exemption--Investment of proceeds in agricultural land--No material to show land was put to other use--That assessee had ventured into real estate business--Not ground to infer land would be put to non-agricultural use--Exemption not to be denied-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
S. 54EC --Capital gains--Exemption--Investment of consideration in specified bonds within six months of transfer--Receipt of consideration in subsequent years and investment within six months of receipt--Exemption allowable-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
S. 92C --International transactions--Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24
S. 92CA --International transactions--Arm’s length price--Expenditure cannot be disallowed merely because in opinion of Transfer Pricing Officer it was unnecessary--Amended formula brought for first time before Tribunal--Reasonableness to be determined by authorities below--Matter remanded-- Ericsson India Private Ltd. v. Deputy CIT (Delhi) . . . 79
----International transactions--Arm’s length price--Reimbursement of expenses to associate enterprises--Addition on ground that services not intra-group services and no remuneration paid--Assessee furnishing details of expenses paid of work done--Addition to be deleted-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
S. 92CA(4) --International transactions--Transfer pricing--Arm’s length price--Referral fee--Reference to Transfer Pricing Officer--Finding of Transfer Pricing Officer that transaction at arm’s length price--Assessing Officer has no jurisdiction to re-determine and make addition--CBDT Circular No. 3 dated 12-3-2008-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
S. 143(1) --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 147 --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 148 --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 158BE, Expln. 2 --Search and seizure--Block assessment--Limitation--Date from which reckoned--“Last of panchnamas†, meaning of--Last of panchnamas in respect of any of warrants of authorisation not necessarily in respect of last warrant of authorisation--Requirements of panchnama--Panchnama not recording any search or statement but mere formality for lifting prohibitory order--Not panchnama from which time limit of assessment to be reckoned-- Asst. CIT v. Shree Ram Lime Products Ltd. [SB] (Jodhpur) . . . 1
S. 234A --Advance tax--Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 234B --Advance tax--Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 234D --Interest on excess refund--Provision not applicable for assessment year 2003-04-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Income-tax Rules, 1962 :
R. 10B(2) --International transactions--Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24
Volume 17 : Part 1 (Issue dated : 9-07-2012)
SUBJECT INDEX TO CASES REPORTED IN THIS PART
Advance tax --Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation--Income-tax Act, 1961, ss. 234A, 234B-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Capital gains --Exemption--Investment of consideration in specified bonds within six months of transfer--Receipt of consideration in subsequent years and investment within six months of receipt--Exemption allowable--Income-tax Act, 1961, s. 54EC-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
----Exemption--Investment of proceeds in agricultural land--No material to show land was put to other use--That assessee had ventured into real estate business--Not ground to infer land would be put to non-agricultural use--Exemption not to be denied --Income-tax Act, 1961, s. 54B-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
----Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement--Income-tax Act, 1961, ss. 2(47), 45(3)-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
Depreciation --Rate of depreciation--Computer accessories--To be allowed at 60 per cent.--Income-tax Act, 1961-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
Interest on excess refund --Provision not applicable for assessment year 2003-04--Income-tax Act, 1961, s. 234D-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
International transactions --Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment--Income-tax Act, 1961, s. 92C--Income-tax Rules, 1962, r. 10B(2)-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24
----Arm’s length price--Expenditure cannot be disallowed merely because in opinion of Transfer Pricing Officer it was unnecessary--Amended formula brought for first time before Tribunal--Reasonableness to be determined by authorities below--Matter remanded--Income-tax Act, 1961, s. 92CA-- Ericsson India Private Ltd. v. Deputy CIT (Delhi) . . . 79
----Arm’s length price--Reimbursement of expenses to associate enterprises--Addition on ground that services not intra-group services and no remuneration paid--Assessee furnishing details of expenses paid of work done--Addition to be deleted--Income-tax Act, 1961, s. 92CA-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
----Transfer pricing--Arm’s length price--Referral fee--Reference to Transfer Pricing Officer--Finding of Transfer Pricing Officer that transaction at arm’s length price--Assessing Officer has no jurisdiction to re-determine and make addition--Income-tax Act, 1961, s. 92CA(4)--CBDT Circular No. 3 dated 12-3-2008-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
Non-resident --Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services--Income-tax Act, 1961, s. 9(1)(vii)--Double Taxation Avoidance Agreement between India and the Netherlands, arts. 5, 12(5)(b)-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Reassessment --Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper--Income-tax Act, 1961, ss. 143(1), 147, 148-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Search and seizure --Block assessment--Limitation--Date from which reckoned--“Last of panchnamas†, meaning of--Last of panchnamas in respect of any of warrants of authorisation not necessarily in respect of last warrant of authorisation--Requirements of panchnama--Panchnama not recording any search or statement but mere formality for lifting prohibitory order--Not panchnama from which time limit of assessment to be reckoned--Income-tax Act, 1961, s. 158BE, Expln. 2 -- CIT (Asst.) v. Shree Ram Lime Products Ltd. [SB] (Jodhpur) . . . 1
SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and the Netherlands :
Art. 5 --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Art. 12(5)(b) --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Income-tax Act, 1961 :
S. 2(47) --Capital gains--Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
S. 9(1)(vii) --Non-resident--Taxability in India--Non-resident awarded contract but assigning it to Indian subsidiary--Subsidiary lacking technical expertise and resources and non-resident providing co-ordinating and facilitating services--Payments by Indian subsidiary corresponding to invoices--Cost allocation not explained--Element of profit not ruled out--Non-resident taxable on payments as fees for technical services-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 45(3) --Capital gains--Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
S. 54B --Capital gains--Exemption--Investment of proceeds in agricultural land--No material to show land was put to other use--That assessee had ventured into real estate business--Not ground to infer land would be put to non-agricultural use--Exemption not to be denied-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
S. 54EC --Capital gains--Exemption--Investment of consideration in specified bonds within six months of transfer--Receipt of consideration in subsequent years and investment within six months of receipt--Exemption allowable-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
S. 92C --International transactions--Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24
S. 92CA --International transactions--Arm’s length price--Expenditure cannot be disallowed merely because in opinion of Transfer Pricing Officer it was unnecessary--Amended formula brought for first time before Tribunal--Reasonableness to be determined by authorities below--Matter remanded-- Ericsson India Private Ltd. v. Deputy CIT (Delhi) . . . 79
----International transactions--Arm’s length price--Reimbursement of expenses to associate enterprises--Addition on ground that services not intra-group services and no remuneration paid--Assessee furnishing details of expenses paid of work done--Addition to be deleted-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
S. 92CA(4) --International transactions--Transfer pricing--Arm’s length price--Referral fee--Reference to Transfer Pricing Officer--Finding of Transfer Pricing Officer that transaction at arm’s length price--Assessing Officer has no jurisdiction to re-determine and make addition--CBDT Circular No. 3 dated 12-3-2008-- Cushman and Wakefield India P. Ltd. v. Asst. CIT (Delhi) . . . 48
S. 143(1) --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 147 --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 148 --Reassessment--Income escaping assessment--Original assessment done by mere processing of intimation--Facts cumbersome and complicated--Reopening of assessment proper-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 158BE, Expln. 2 --Search and seizure--Block assessment--Limitation--Date from which reckoned--“Last of panchnamas†, meaning of--Last of panchnamas in respect of any of warrants of authorisation not necessarily in respect of last warrant of authorisation--Requirements of panchnama--Panchnama not recording any search or statement but mere formality for lifting prohibitory order--Not panchnama from which time limit of assessment to be reckoned-- Asst. CIT v. Shree Ram Lime Products Ltd. [SB] (Jodhpur) . . . 1
S. 234A --Advance tax--Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 234B --Advance tax--Interest--Tax deducted at source to be taken into account--Matter remanded for recomputation-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
S. 234D --Interest on excess refund--Provision not applicable for assessment year 2003-04-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
Income-tax Rules, 1962 :
R. 10B(2) --International transactions--Arm’s length price--Determination--Transfer pricing study--Transactional net margin method --Rejection of comparables selected by assessee without mentioning how they were not functionally comparable and without considering assessee’s objections--Selection by Transfer Pricing Officer of companies not engaged in similar business--Companies selected by him not functionally comparable--Arm’s length price determined by assessee not liable to adjustment-- Carlyle India Advisors P. Ltd. v. Asst. CIT (Mumbai) . . . 24
it seems that the amendment brought in section 234D has not been noticed by the bench or not been brought to the notice of Bench by DR.MA should filed.
Interest on excess refund --Provision not applicable for assessment year 2003-04--Income-tax Act, 1961, s. 234D-- Van Oord ACZ Marine Contractors BV v. Assistant Director of Income-tax (International Taxation) (Chennai) . . . 103
-- S. 2(47) --Capital gains--Transfer--Date of transfer--Agreement between assessee and builders for development of land--Agreement registered in later year--Transfer took place on date of agreement-- Mahesh Nemichandra Ganeshwade v. ITO (Pune) . . . 116
-- Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
The Income-Tax Department has tightened its leash on commodities derivatives transactions put through recognised associations.
The Central Board of Direct Taxes (CBDT) has asked commodity bourses to file with the Tax Department monthly reports of client code (unique customer ID) modifications.
Reporting on client code modifications will help plug revenue leakages, say tax experts.
This move is being largely driven by the Budget 2013-14 announcement to treat commodities derivatives transactions as non-speculative transactions for income tax purposes.
All commodity derivative transactions put through recognised associations will be taxed under the business income head for income tax purposes.
By recognising them as business income, a participant in bourses will be able to set off the losses if any against any other incomes such as those from sale of property etc.
This set off benefit was not available till recently as commodity derivative trade was considered as speculative transactions for income tax purposes.
The CBDT has also now laid out the conditions for recognising an association. It is only the participants of a recognised association who can avail themselves of the new tax regime on commodity derivative transactions.
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